The proposed sweeping new rules on payday loans need to be strengthened before going into effect, Senate Democrats told the Consumer Financial Protection Bureau Wednesday.
The regulations, proposed in June, would require lenders to determine that borrowers have the ability to repay short-term, small loans, along with other measures meant to prevent hard-up customers from falling into a “debt trap” of successive expensive loans.
But lenders could offer short-term loans without establishing the ability to repay if they met certain specifications, such as that the amount stay under $500 and they are not made to people already deeply in debt. Democrats want that exception taken out of the rule when it is finalized.
In a letter sent to the bureau, the senators asked it to “ensure the strongest possible defense against the predatory lending models that trap consumers in unaffordable and escalating cycles of debt.” Twenty-eight Senate Democrats, led by Sherrod Brown of Ohio, the top Democrat on the banking committee, signed the letter.
They also asked the bureau to increase the length of the “cooling off” period that forces borrowers to wait before taking out new loans, another provision meant to stop families from relying on long strings of payday loans. The proposed version of the rule placed the cooling-off period at 30 days, and the Democrats want it extended to 60 days.
Liberal Democrats have strongly supported the payday loan rules, which the industry has warned could effectively kill off the payday lending industry. Some analysts, however, faulted the bureau for failing to effectively rule out the possibility that lenders could offer loans with terms that translate to annual interest rates above 300 percent.
Also leading the letter were Sens. Jeff Merkley of Oregon, Dick Durbin of Illinois and Chris Coons of Delaware.
